EU GAS DIFFICULTIES

The European Union would find it difficult to reduce its reliance on natural gas imports from Russia, according to industry experts.

While overtures are afoot to decouple from Russian imports in wake of the Ukraine crisis and subsequent sanctions on Moscow, published data paints a grim picture. According to Eurogas, a non-profit lobby group of natural gas wholesalers, retailers and distributors, the EU's 28 members sourced 24% of their gas from Russia in 2012.

However, averages can be misleading. For instance, Estonia, Finland, Latvia and Lithuania got nearly 100% of their gas from Russia, with Bulgaria, Hungary and Slovakia not far behind having imported 80% or more of their requirements. On the other hand, UK and Netherlands appeared to be least exposed.

Between 2002 and 2010, Russian gas imports were gradually declining, but the trend appeared to be reversing in 2012, according to Eurostat, rising to 29.5% over last few years. Speaking to Sharecast at the recently concluded World National Oil Companies Congress in London, Laurent Ruseckas, senior advisor on global gas at IHS, said: "There might be political pressure to pull away from Russia, but decoupling from a supplier you have been with for decades is not quite so simple."

"You could also argue that there is a fair degree of interdependence. Both parties – despite geopolitical complications – need each other. Despite years of trying, Qatari imports to the EU-28 account for less than a third of Russian volumes into Europe. Even if the will was there, EU's Russian exposure is not going to away anytime soon."

The International Energy Agency (IEA) voiced a similar opinion with a spokesperson noting the EU would need Russian gas for the "foreseeable future."

Pining hopes on a European shale gas revolution would be foolhardy, according to Pawel Poprawa, advisor at Instytut Studiow Energetycznych in Poland, a country associated with massive shale reserves.

"Poland's reserves caused a lot of excitement in the oil and gas world with forecasts of a potential for 100 to 150 bcm per annum of production. Oil and gas majors bought into the hype, only to retreat in the face of escalating costs and setbacks, with potential prospects for viable production reduced to a tenth of what they were at the outset," Poprawa told Sharecast.

"Even, in a best case scenario, it is hard to imagine any commercially viable production in Poland over the next two to three years. The future of the Polish shale industry, and by extension that of Europe, belongs to smaller independents. We are now learning our own lessons at a pace we ought to have learnt from the outset."

That said, Poprawa believes Russia also needs EU markets. "Everything was going well from a Russian perspective, until Moscow made a huge miscalculation on Ukraine. While what has happened has been a wake-up call for Europe; Russia also has a problem – one of compartmentalising gas distribution and using gas as a geopolitical tool."

As countries have built interconnectors, should the Russians reduce gas flow via Ukraine, supplies can be diverted internally, Poprawa added. "And despite the natural gas exports deal between Beijing and Moscow, geographical proximity means Russia needs Europe more than it admits it does."

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